Business

Cut rates 'to help rebuild confidence'

3 September 2010

The latest money supply and credit extension figures make a case for a further modest interest rate cut, says Business Unity South Africa, adding that this would help rebuild business and consumer confidence at a critical stage in the business cycle.

The South African Reserve Bank (SARB) said this week that growth in private sector credit extension had risen 1.98% year-on-year in July, compared with a revised 0.89% expansion in June.

However, the data showed that corporate demand for credit remained weak, said Business Unity SA (Busa) deputy CEO Raymond Parson, reinforcing arguments for a further cut.

"The recent OECD [Organisation for Economic Co-operation and Development] report on SA also suggested that there may yet be room for some further reduction in interest rates, which would be supportive of output growth," he said on Tuesday.

Other factors which had recently pointed in the same direction included the generally still-fragile economic recovery, the favourable inflation outlook and the strong rand.

"The balance of risks appears to have shifted in favour of an interest rate cut," Parsons said.

While a further reduction in interest rates was no panacea, it would help to rebuild business and consumer confidence at a critical stage in the business cycle.

Since December 2008, the SARB has cut the repo rate seven times.

Sapa